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Au- 11. TEXAS
PRICE DANIEL
ATTORNEYGENERAL 1
December 13,1949
Mrs, 8. El, sapp Opinion No:1 VG!965
Director and Executive Secretary
Teacher Retirement System of Texas Re: Payment of accumulated
Austin, Texas contributions of member
of Teacher Retirement
System who died bedere
Dear Mrs. Sapp: rdireaasnt.
Your request~for an opinion reads in part as follows:
“Please instruct me as to the proper dispositien
of claims based on the following circumstances:
‘“1, A member of the Teacher Retirement Systam
designated her husband as be~neficiary to receive her
accumulated deposits if death occurred before retire-
ment was in effect. The said member, two years after
making the said designation, obtained a divorce from
the said husband, Two years subsequent to the divorce
the said member died; said member being survived by
her mother. Since the designation specified husband
a& since the said member died without a husband, am
I o+rrect in assuming that the money should be refunded
rccerding to the laws of descent and distribution of Texas?
‘2. A member designated her husband as benefi-
ciary, later obtained a divorce from said husband and
remarried. The said member failed to change her for-
mer designation and now has died, having died the wifp
of the second husband. Will the former designation hold
or should the money be paid to the husband with whom
she was living at the time of her death? *
We assume that the designation of the named beneficiary
in each instance mentioned in your request was made on the form
adopted by the Retirement System, and further that the two mem-
bars of the Retirement System involved herein died intestate We
are of the opinion that the s-e conclusion is applicable to each
. .
Mrs. B. B. Sapp, Page 2 (Opinion V-965)
of the two situations and they will ba discussed together.
The questions presented have obviously arisen be-
cause of the insistence on the part of interested parties that
accumulated contributions paid under the Teachers’ Retire-
ment System are in the nature of insurance, and hence the Texas
rule with respect to insurable interest on the part of benefici-
ariesin life insurance policies 1 should be applied to the party
designated to receive paid in contributions in the event of iha
death&&e member prior to retirement.
The Act creating the Teachers’ Retirement System,
Article 2923-l V,C,S;, in general sets up a system wher,eby
the teachers of the public schools may be retired for length of
service or disability. It provides icr retirement or disability
benefits in the form of annuities payable in part out of sums
contributed from the salaries of the teacher members of the
System, and the balance out of fr:nds contributed by the State,
Upon retirement the memb?r i s eniitled to receive a retire-
ment allowance in the form of an annuity which is derived from
accumulated contributio-s credited to his or her account in the
Teacher Saving Fund ai ,i:e timne of retiresnent and from certain
credits allowed for service prior ia tne establishment of the
System, Woods y.2 Reilly, 9.47 Tex: 586, 218 S.W.Zd 437 (19,49).
With reference to contri!:utions paid into the System
by the members the Act specifically provides in Subsection
6, Section 5, Art. 2922-1, V.C.S., as amended, Acts Slst Leg.,
R.S, 1949, Ch. 139, p* 244, that:
l/ No person can be named beneficiary in a life insurance pol-
icy unless he has an insurable interest in the life of the per-
son insured. Drane v. Jefferson Standard Life Ins. Co., 139
Tex. 101, 161 S.W,2d 1057(1942). The insurable interest which one
spouse has in the life of the other ceases upon divorce oKthe pu-
ties, Northwestern Mut, Life Ins* Co. v. Whiteselle, 221 SW. 575
(Ter.Comm.AppP,, 1920); and thus, under the Texas rule reqddng
the presence ef insurable interest not only at the time ef the ik-
surance but.also at the time of the loss, McBride v. Clayto& l&g
Ten. 71, 166 S.W.Zd 125 (19421, th e interest ef the divorce* apeuse
named as beneficiary terminates upon the granting of the divorce.
&tch v. Hatch, 80 SW. 4ll (Tax. Civ. App. 19g4, error ref.).
Northwestern Mut, Life Inc. CQ. v.. WhiteselleJ supra.
Mrs. B. B. Sapp, Page 3 (Opinion V-965)
“(a) Should a member cease to be a teacher or
auxiliary employee except by death or retirement
under the provisions of this Act, he shall, upon the
filing of formal application therefor, be paid in full
the amount of the accumulated contributions standing
to the credit of his individual account in the Teacher
Saving Fund, and his account shall thereupon be closed,
“(b) A member may by written designation in such
form as the Board of Trustees may prescribe, provide
that the accumulated contributions standing to his in-
dividual account shall be paid in the event of the death
of the member before retirement, to the beneficiary
named in such written designation; and if the member
shall die before retirement, his accumulated contribu-
tions shall upon application be paid to $& beneficiary
e desimted, if the beneficiary. survives the member.
The members may change the beneficiary desipnate& to
r+ceive his accuPaulat& *sits in case of de&& befgrd
retir~nt, or~rbvR46e c &sQxWUa pawfosely made,
w filiq w% the Boar& of Trustees in s&i forrs *8 it
may require, notice of such change er revacrtion.
“En t&e event the member dies before retirement
tiithout so dasignatfng.o beneficiary to receive his ac-
curm@ted cantributions, nor in event the designated
beneficiary gre4eceases the member, his accumulabedr
contribution~s standin to his credit in the Teacher SW-
ing Fund shall be p@x4 to his &%aW. . O a*
All that is involved here are the contributions paid into
the Systep by one of its members. No question is presented with
respect te any Bortion of the annuity payable to a member upon re*
tirement. For the reasons hereafter discussed, we have conclud@
that the contributions in question are not insurance ~Md are mot,.
therefore, subject to the rules of *insurable interest.”
No Texas court has passea on the question, The Pederal
courts have held that the refunding, of contributions priid a mem-
ber of the New York City khnp1oyees’ Retirement System 'r and to.
which the estate or designated nominee of the employee were to
have the same refunded in the event of death before retirement)
contained none of the elements of insurance. f(ernochan v. United
States, 29 F.Supp. 860 (Ct. Cl. 1939, certiorari denied, 309 U.S. 675),.
The court said:
“The plaintiff insists that the widow did not re-
ceive this sum as the result of a transfer made to
Mrs. B. B. Sapp, Page 4 (Opinion V-965)
take effect at or after decedent’s death, but, on the
contrary, that it was insurance on the decedent’s life,
‘“With this contention we cannot agree.
‘“The purpose of the deductions from decedent’s
salary and the contribution made by the City of New
York was to build up a fund from which the employee
could be paid an annuity upon his retirement. This is
evidenced by the fact that when the System w,as released
from the obligation to pay the annuity, either by appli-
cant’s withdrawal during life and before retirement, or
by death before retirement, he, or his estate, or nominee,
was then entitled to have returned all amounts dad&ted
from his salary, plus interest at 4 percent. Upon with-
.drawal or death the contract to pay the annuity was can-
celled and the consideration returned. The exact a-
mount paid, plus interest, was refunded, no more and
no less. There is no element of insurance --in this.
“Bad the widow upon the decedent’s death been en-
titled to receive the annuity payable to the employee
upon the retirement, there would be room for tke con-
tention that the contract was a contract of insurance,
but she was not entitled to this, but only to a refund of
the amount paid, plus interest.
“Our attention has been directed to the case of In
the Matter of the Estate of Mary V. Fitxsimmons, 158
,Misc. 789, 287 N.Y.S. 171, in which it was held that tke
amount received under a similar statute from the Teach-
ers’ Retirement System was exempt from tha New York
Estate Tax as insurance. It does not appear that any at-.
’ tempt was made in that case to differentiate between the
amount refunded and the amount paid as a death benefit.
*Even though we were bound by the decisions cf;the
simte courts in construing the Federal Estate Tax Act,
we would not feel bound by these decisions, because in
#em the point was not raised that is raised in this case.*
To the same effect is Wilson’s Estate v. Collector ef~ln-
ternal Revenue, 42 B.TJA. ll96 (194Q), wherein it was held that funds
contributed to the teachers’ retirement fund by a teacher member
who d.ied before retirement, couM not be considera& as kswance
Mrs. B. B. Sapp, Page 5 (Opinion V-965)
within the meaning of the Revenue Act of 1926.
It is also pertinent to observe that nothing is contained
in the Act in question requiring the person designated by the
member to receive accumulated contributions to have an ‘insur-
able interest” in the life of the system member. The Legislature
could have easily so provided,2 but it has not seen fit to do so. 3
Indeed, the Wisconsin Supreme Court has held under its Teachers’
Retirement Act, which requires that the party designated to re-
ceive accumulated contributions in the event of death of the mem-
ber have an insurable interest, 4 that the interest of a spouse
named as beneficiary of the sum payable on the death of the other
spouse from the teachers’ retirement fund did not terminate by
reason of a divorce ,subsequent to the designation in the absence
of a written notice to the retirement board changing the beneficia*y.’
Wolf v. lebe, 242 Wis, 650, 9 N.W.2d 124 (1943).
2/ The Wisconsin Teachers” Retirement Act specifically provides
that the person designated to receive accumulated, contributions
shall have “an insurable interest in the life of the member.” Wis.
St; 1941, g 4250 (1).
3/ Subsection 6, Section 5, Art. 2922-1, V.C.S., as originally en-
acted, Acts 45th Leg., R.S.. 1937, Ch. 470, p. 1178, provided in
part: *Should a member die before retirement, the account of his
accumulated ‘contributions standing to the credit of his individual
account shall be paid as provided by the laws of descent and dis-
tribution of Texas unless he has directed the account& be paid oth-
erwise.w This same language was re-enacted in the 1941 amend-
ment, Acts 47th Leg.. R.S., 1941, Ch. 376, p* 610, and is the form in
which the section stood at the time of making the designations in-
quired about in your request. The 51st Leg., R.S. 1949, Ch. 139, p.
244, ~-ended said section so as to read as above quoted in this opin-
ion.
4/ See footnote 2 above.
5/ This result would not follow in Texas because under the Texas
rule the insurable interest must be present at both the time of
issuance and the loss, See cases cited in footnote 1 herein.
Mrs. B. B. Sapp, Page 6 (Opinion V-965)
Having concluded that the accuntulated contributions
are not insurance, we turn now to the question of whether a di-
vorce amounts to a revocation of the designation oftthe party tm
~ce4ve such accumulated contributions in the event of death of
the member, We think not. The case nearest in point is &g,&&
158 S.W.2d 116 (Tex, Civ. App. 1947, errer ref. W.O.
in a husband bequeathed a portion of his estate to his
eeuse. Later the parties were divorced, and the husband rernar-
ried without changing his will. The court held that there was no
revocation of the bequest to the former wife by reason of the di-
verce, observing that:
“We do not find in this record any sound basis
for helding a revocation of the will ‘by iinplication.’
‘“In Morgan v. Davenport, 68 Tex. 230, at page
2,37, our Supreme Court said: “We therefore hold that
under the statutes of this state there can be no su,ch
thing as the revocation of a valid written will, unless
the same be revoked in one of the manners prercribed
by the statute.’
“The case before us presents a typical illustrr-
tion of the lack of care that the average American
citisen takes in seeing that his estate is dispcadd 6f
rcccrding to his personal desires, after his demise.”
Likewise the rule stated in 57 Anx. Jur. 924, Wills, Sec.
1367, that the ““presmrxption that the test&x intended t&t the
denee should take although divorced is. strongly fortified. . . .
where a lapse of some time eccurs between the granting of the
d,ivprce and the death of the test,ator, the letter having ample lle-
pertunity to change his will during that tinae. ~ D 0mis equaIly prp-
pfic&le te the facts before us. In one instance, under the facts
submitted, the member of the Teachers’ jlystem had two years
after the granting of the divorce in which to change the a’esigna-
tien of the party to receive her accuroulated contributions, and
failed to do so. No facts are presented in either instance reflect-
ing that the member was in any way prevented from making suck
change had it been so desired..
One further question,remains. It relates to the fact i9prt
the teacher member, at the time of making the.designa~iwnen’the
term provided by the System, showed that the individual named tc
receive accumulated contributions, held the relationship to her mf
“husband.nD We have concluded that the use of the word “husband”
used in the designation is merely descriptive, and that the person
lstually named is controlling, Murnhy v. Markis, 98 N.J.Eq. 153,
Mrs. B. B. Sapp, Page 7 (Opinion V-965)
130 A. 840 (1925); State ex rel Kuehmsted v. Hewitt, 130 Fla. 1177,
138 So, 778 (1932). In this last case the court said:
“The rule seems to be well settled that where e
woman dies intestate, her husband, surviving, takes
‘as husband’ under the statute of descents, but when
she leaves e will and devises property to him by name
and identifies him as her husband, he does not take
‘es the husband’ but he takes as a named beneficiary
end the word ‘husband’ is merely descriptio personae.’
In each of the two instances presented the teacher mem-
ber had executed and filed with the Retirement System a designa-
tion of beneficiary to receive accumulated contributions in the
Teacher Saving Fund of the System in the event of death before re-
tirement. .This w&s done on the foFm prescribed by the System
which specifically provides that should the member decide to have
his or her accumulated contributions paid to someone other than
the party, or person named, such change will be made in writing
on a form prescribed by the System and that such change will be
filed with the System. No such change w&s made by either member
according to the facts before us0 Such members had a right to
make such change and dispose of the contributions es they sew fit.
See concurring opinion of Justice Garwood in Woods v. Reilly, supra.
For reesons known only to such deceased members they did not see
fit to make such changes.
Accordingly you are advised that the accumulated contribu-
tions of the two System members should be paid to the parties named
end designated as beneficiaries. ._
SUMMARY
A husband or wife of a member of the Teachers’
Retirement System, designated by name as,beneficiary
of the member’s accumulations in the retirement fund
in the event of the death of such member prior to re-
tirement, is not deprived of the right to such accumula-
tions, by reeson of divorce subsequent to such designa-
tion. The accumulated payments provided for in Art.
2922-1, V.C.S., are not in the nature of insurance. The
Texas law dbes not require that the beneficiary have en
Mrs. B. B. Sapp, Page 8 (Opinion V-965)
insurable interest in the life of the tescher. Bene-
ficiaries may be changed upon divorce by written no-
tice es provided by law.
Yours very truly,
ATTORNEYGENERALOF TEXAS
Exeautive Assistant
cDM:v
A&!
APPROVED:
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